Photo/Illutration A Mizuho Bank sign in Tokyo (Asahi Shimbun file photo)

For the first time ever, Mizuho Bank was charged negative interest rates on deposits made to its Bank of Japan account--something expected to cost the megabank 75 million yen ($560,000).

The negative rates were applied to deposits made to its account there from July to August, according to BOJ statistics released on Aug. 16 and Mizuho Bank officials.

The central bank introduced negative interest rates in 2016 as part of its monetary easing policies to encourage private-sector banks to increase loans to companies or make more investments in them.

But the policy has produced unintended consequences, such as commercial banks choosing to pay interest rates to keep their funds at the BOJ, rather than extending loans to companies or investing in securities and other assets.

Mizuho Bank chose to make the deposit, knowing full well it would get dinged by the negative rates, after the BOJ’s monetary easing policies flooded capital markets with funds and caused a drop in yields in Japan’s short-term government bonds. The bank calculated it would lose less money this way.

“As we forecast that this trend will continue for the foreseeable future, we chose to make a deposit in our current account at the Bank of Japan,” a Mizuho Bank official explained.

Mizuho Bank invests several trillions of yen in Japanese short-term government bonds and other securities, but their yields dipped below negative 0.1 percent in the past three months, according to a Mizuho Bank official.

The way negative interest rates work is the central bank collects a percentage when a deposit exceeds a certain amount. It charges 0.1 percent of the excess funds put into the account.

The central bank did not provide a breakdown of the accounts held there by banks. But it said on Aug. 16 that out of the roughly 189 trillion yen major banks deposited into their accounts between July 16 and Aug. 15, negative interest rates were applied to 903 billion yen.

Mizuho Bank officials said they believe that the 903 billion yen is their own deposit.

They also said the 75 million yen the bank expects to lose from keeping the funds in its central bank account is not so large that it would have to pass the cost onto customers.

MUFG Bank also suffered at the hands of the BOJ’s negative rates from the end of last year to January.

Experts warned that applying a negative interest rate to deposits by megabanks, which are believed to have greater expertise in fund management than other financial institutions, could once again cast doubt on the central bank’s monetary easing policies.

(This article was written by Taiki Koide and Eisuke Eguchi.)

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